Artificial intelligence startup OpenAI is reportedly in talks with venture capital firms to raise the largest injection of fresh capital in more than a year, which could see the firm valued at over $100 billion.
Venture capital firm Thrive Capital will invest $1 billion in the funding round and tech giant Microsoft is also expected to front up capital, according to an Aug. 28 Wall Street Journal report that cited sources familiar with the matter.
The funding round would be the most significant injection of new capital for the AI firm since Microsoft invested $10 billion in the startup in January 2023.
Microsoft currently holds a 49% stake in OpenAI, having invested $13 billion into the firm since 2019.
According to internal documents reviewed by The Wall Street Journal, OpenAI stockholders had been negotiating a deal to sell their shares at a price that would value the AI firm at around $103 billion.
The documents also showed any new investment in the firm would likely value OpenAI at this price or above, excluding any new funds generated by the raise.
In February, OpenAI signed a deal allowing its employees to sell their stakes in the company. The sales showed that OpenAI was privately valued at around $86 billion.
OpenAI’s profitability raises eyebrows
AI firms continue to attract investors despite reporting relatively small earnings. According to recent reports, OpenAI is running an annualized revenue of around $3.4 billion.
Several commentators have criticized OpenAI’s business model, with tech reporter Ed Zitron describing OpenAI’s path to profit as “untenable” on Aug. 2.
Source: X
He said that for OpenAI to survive beyond 2026, the company would need to raise more funding than any startup in history.
Zitron’s comments came following recent reports that OpenAI could lose as much as $5 billion in 2024, putting the company at risk of running out of cash within 12 months.
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It’s important to note that OpenAI investors don’t own any private equity, as the startup is technically still a nonprofit organization.
However, investors instead put their money in a for-profit subsidiary of OpenAI (OpenAI LP) and are then entitled to a share of that entity’s profits once it reaches a pre-determined cap.
The news of a potential new funding round comes amid an increasingly competitive landscape for AI companies.
Google has spent billions launching its own AI product Gemini, the latest version of its chatbot assistant originally known as Bard.
Google and Amazon have invested a combined $6 billion into another AI company called Anthropic, which is behind the chatbot Claude. Another competitor, Meta, is behind Meta AI, which uses its own open-source large language model, Llama 3.1.
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